Partly Cloudy to Clear: The Israeli Economy and the Local Housing Market under the Storm of theWorld Financial Crisis

Israel's economy is relatively small by Western standards and highly dependent on foreign trade. However, two years after the onset of the world financial crisis, the effect of the world economic developments on the Israeli economy and the local housing market are relatively minor compared with most Western markets. This chapter describes the major factors that evidently prevented the storming world financial crisis from fatally damaging the shores of the Israeli economy and its local housing market. Particularly, two aspects underlie the strength of the local economy. First is, the solid economic variables with which Israel has met the crisis—among others, a declining trend of public-debt-to-GDP ratio; relatively low unemployment rate, etc. Second is, the measures effectively adopted by the Bank of Israel following the onset of the crisis—among others, dramatically decreasing short-term interest rates; and intensively intervening in the foreign currency market, thus preventing a collapse in the exchange rate of the U.S. dollar to the New Israeli shekel.